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12/19/2008 381 RESPONSE in Opposition re: 355 MOTION

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scion Member Level  Monday, 12/22/08 12:22:23 PM
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12/19/2008 381 RESPONSE in Opposition re: 355 MOTION Order for Disgorgement and Civil Penalties against Defendant Mark Neuhaus.. Document filed by Mark S. Neuhaus. (Attachments: # 1 Exhibit A)(Baker, Brent) (Entered: 12/19/2008)

Doc 381


Defendant, Mark S. Neuhaus ("Neuhaus"), by and though his undersigned attorney, files this to the Plaintiff's Motion for Disgorgement and Civil Penalties Against Defendant Mark S. Neuhaus filed November 7, 2008.

I. Background

Neuhaus responded to several voluntary requests for information by the SEC while the SEC was investigating this matter. Neuhaus also provided testimony at least two times over a period of three years.
When advised of the SEC's intention to file this civil case, Neuhaus, through his prior counsel, John Harris, approached the SEC about settlement and further cooperation.

Once the SEC filed its civil action, Neuhaus tried to assist the SEC by cooperating fully. On February 21, 2007, this honorable Court granted summary judgment against Neuhaus solely as to the Section 5 allegations[Docket No. 172].

In or around March 2007, Neuhaus again approached the SEC and began what Neuhaus believed to be the SEC's usual and customary process of settling the balance of the civil case.[1] In November 2007, Neuhaus consented to a bifurcated settlement of the remaining SEC allegations in the complaint seeking the imposition of injunctive relief against further violations of the registration and antifraud provisions without admitting or denying these allegations, as well as to the imposition of a bar prohibiting him from participating in any offering of penny stock. On December 4, 2007, pursuant to Neuhaus' consent, the Court issued a permanent injunction and penny stock bar against Neuhaus. [Docket Nos. 260, 261]. Under the terms of the settlement, the issues of disgorgement and penalties were reserved for later resolution by the Court or as agreed between the parties in settlement.

[1] Neuhaus was concerned because he because he had been notified that he may be the target of a criminal prosecution in the Southern District of New York.

Neuhaus expended many hours preparing the documents and assembling the information sought by the SEC to settle this matter by demonstrating his inability to pay. The financial statements submitted to the SEC and which Neuhaus will provide to this court under protective order, show that Neuhaus has no present ability to pay. This matter has ruined his life both personally and financially. His divorce is imminent and he has no money. Neuhaus, who was not a principal of the scheme alleged by the SEC, and who has cooperated from the start in this investigation and litigation, is not only getting no benefit for cooperation, he is being unfairly punished because he has attempted in good faith to settle this matter. The SEC without explanation stopped the settlement process and filed a pleading with the Court.[2]

[2] For example, the Seaboard Report implies that the SEC encourages "cooperation" and will consider it a factor in making enforcement decisions. Securities Exchange Act Release No. 44969. The SEC has totally disregarded its own stated intentions. Such disregard is emblematic of the internal problems at this agency. See Report U.S. Securities and Exchange Commission Office of Inspector General Semiannual report to Congress dated March 21,
2008 ( ).

The SEC participated actively in the settlement process and continued to act as if was still working towards settlement until two days prior to filing this motion. Neuhaus submitted a
detailed Sworn Statement of Financial Condition, and supporting documentation as requested by the SEC. Neuhaus supplemented the Sworn Financial Statement multiple times at the request of
the SEC. Exhibit emails attached as Exhibit A. As recently as two days prior to filing this motion, the SEC created the appearance that the settlement was moving forward by requesting the final document (a waiver to obtain a credit report) which the SEC typically requires to complete a settlement. Exhibit B.

Two days after requesting the consent to a credit report, the SEC unilaterally filed this motion without any prior notice to Neuhaus of his counsel.

Neuhaus does not deny these facts nor does the SEC. Neuhaus has consented to entry of judgment as to liability in good faith.

II. Disgorgement Can't be a Penalty

Neuhaus' profit in this scheme should be limited to what he was actually kept after he remitted the money to Universal Express. SEC v. Thomas James Associates, Inc., 738 F. Supp 88, 94 (W.D.N.Y. 1990). It is clear that disgorgement is intended to prevent unjust enrichment and Neuhaus would only be unjustly enriched to the amount he invested. Other wise, disgorgement become punitive.

II. Collaboration Does Not Make Neuhaus Jointly and Severally Liable.

All of the cases cites by the SEC are distinguishable. They stand for the proposition that joint and several liability is appropriate in assessing disgorgement when the profits cannot be apportioned because the defendants are too intertwined with each other. SEC v. Hughes Capital Corp., 124 F.3d 449, 455 (3rd Cir. 1997). Here we can clearly determine the profits Neuhaus made because the SEC admits Neuhaus remitted a significant portion of the trading proceeds back to Universal Express

III. Conclusion

Neuhaus has been attempting to cooperate in good faith for years with the SEC and he presently has no money or ability to pay. In this circumstance, since the SEC is unwilling to follow its own common protocols, Neuhaus asks this court to evaluate the reasonableness of the SEC's conduct in breaking off settlement negotiations and consider Neuhaus' financial condition in evaluating the penalties and civil fines sought by the SEC. Throughout this case, the SEC has been fundamentally unfair and abused its discretion targeting the defendant with the least ability to defend himself.

In addition, the SEC is attempting to attribute excessive disgorgement amounts to Neuhaus to the point that these amounts are punitive. This Court should consider these factors when determining the amount of disgorgement to be assessed to Neuhaus.

DATED this 19th day of December, 2008.
Respectfully submitted,
/s/ Brent R. Baker
Brent R. Baker
New York bar No. BB8285

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